India Microfinance

iMicrofinance : If Steve Jobs worked in a MFI?

By S Santhanam , Consultant – Development Finance

Steve Jobs, CEO, ‘iPeople microfinance Co (India) Ltd’

Late Steve Jobs of ‘Apple’ is still living in US and in a number of countries. His style of doing business has made many CEOs of companies to go back to the drawing boards to redefine their business strategies and plans. I only wished that he had run a microfinance company in India. A few lessons from his life can be learnt for improving the microfinance sector in India and other countries.

In any business, according to Philip Kotler, one of the leading authorities on marketing, 4 Ps and 4 Cs are important. To recapitulate, these are:

4Ps

4Cs

Product

Customer needs and wants

Price

Cost to customer

Place

Convenience

Promotion

Communication

Though microfinance comprises of various financial products and services to the unreached poor, here, we will consider the way how Steve Jobs would have looked at the loan products of his microfinance Institution (MFI) viz., ‘iPeople microfinance Co. Ltd’.

Product:

From the first product namely, Macintosh Computers to the latest ‘iPhone 4S’, no company combined simplicity better than Apple under Steve Jobs’s leadership. Apple made technology accessible for ordinary people. It made products that worked, beautifully, without fuss and with great style. They improved markedly, from one generation to the next, with long lists of features the ordinary people to handle with great ease.

It was often said that Jobs never allowed the opinions of others to drown out his own “inner voice”. One of the popular stories about him was about the moment when the Apple design team presented him with the first version of the iPod. He looked at it for a while, turned it over and over, weighed it in his hand and then said: “It’s too big.” The engineers protested that it was a miracle of state-of-the-art miniaturisation – 1,000 songs packed into that tiny space. Jobs walked over to the fish tank in the corner of his office and dropped the prototype into the water. He then pointed to the bubbles that floated from it to the surface and said: “That means there’s still some space in it. It’s too big.” That is the type of commitment to the last details he had in developing a product keeping the cost of production of the product and the end user customer in mind.

Now, look at the products available from various MFI’s to the prospective users of mF services. Most of them are tweaked products born out of Grameen Bank’s 50 weekly repayment loan product for a group of 5 persons. Another one is loans through Joint Liability Groups (JLGs). Either these products were borrowed from other countries and modified to suit Indian operators. When we look at the origin of most of the MFI’s, one may find similarities to these two products. In developing these products, the MFI’s had kept their bottom line in mind and offered them to the prospective users. Because, their objective was to make profits which should rather be the outcome. In the process, users of microfinance had very little option to choose from and very little incentive also to grow out of the vicious cycle of small loans.

Perhaps, Jobs would have incentivised the prospective clients through a loan product with a discount coupon attached to it and assuring the borrowers that they would get discount in the interest rate or in any of the terms of future contract while availing subsequent loan cycles. This would increase the chances of commitment to stay with one company than looking for all types of MFI’s around. Or he might have offered his product with assurance that his company would stay with the prospective clients seeking to grow micro-enterprises to million rupee enterprises through various multi-platform programmes rolled out at the time of launch of each of the loan products.

Price:

Before pricing a product, Jobs used to spend considerable time to compare the advantages of the products of Apple with that of its competitors who provided similar products. When he launched the iPod in 2001, he made a comparison of iPod with CD player, Flash, MP3 CD and Hard Disk. The comparative chart is given below:

Player

Price in $

Songs

$/ Song

CD

75

15

5

Flash

150

15

10

MP3 CD

150

150

1

HD

300

1000

0.30

He pitched iPod as a superior music playing machine in the music industry which offered greater advantages to the users

Again when he wanted to bring in the support of the music companies to work with him, he ensured that the music industry got the protection of their products (songs) from usage rights by adopting what is called ‘Digital Rights Management’. Apple’s DRM system is called ‘Fair Play’. By this, he protected the interest of those companies which allowed use of their songs in the iPods. This also ensured that he could bring down the product cost considerably as he paid very little by way of Rights to the music companies.

In the mF sector we hear MFI’s charging interest rate upwards of 24 per cent per annum on their loan products. For charging higher interest rate, they usually come with the plea that their cost of operations and raising of capital are higher leaving very little margin for them to sustain. Hence, they justify their action in charging higher rate of interest on their loan products. In case, Jobs had handled it, he would have made a thorough analysis, both technical as he tried to reduce the size of iPod by throwing the proto type into a fish tank and financial as he tried to sell his iPod cheaper than other similarly placed products.

The key to pricing of a product is reducing the cost of producing it and also protecting the interest of the investors. So, Jobs would have ensured that the cost of funds for his MFI is kept lowest by engaging only those actually required and paying them the wages in relation to their productivity. He would have also won the battle with the investors who desire to put conditions against the clients and at the same protected their interest. In the mF sector, we find that the CEOs and promoters are taking all the steps to pay themselves very high salaries, spending on travel which are not directly connected to the business and various other ways at the cost of the very survival of the institution. To improve the margin, cost reduction is the only way forward for the MFI’s which Steve Jobs would have ensured.

Promotion:

Simon Sinek, Professor in Columbia University when differentiating the Apple approach to position its product from others, mentions that the inspired organizations, regardless of their size, regardless of their industry, all think, act and communicate from the inside out.

According to him,

“if Apple were like everyone else, a marketing message from them might sound like this. We make great computers. They’re beautifully designed, simple to use and user friendly. Want to buy one?” Neh. And that’s how most of us communicate. And that’s how most of us communicate interpersonally. We say what we do, we say how we’re different or how we’re better and we expect some sort of a behaviour, a purchase, something like that. But it’s uninspiring.

Here’s how Apple actually communicates.

“Everything we do, we believe in challenging the status quo. We believe in thinking differently. The way we challenge the status quo is by making our products beautifully designed, simple to use and user friendly. We just happen to make great computers. Want to buy one?” Totally different, right? You’re ready to buy a computer from Apple.

All it was done was reverse the order of information. What it proves to us is that people don’t buy what you do; people buy why you do it. This is the message, Jobs continued to hammer in the minds of his prospective clients.

He wanted to position his products as client friendly . Towards this end, he relentlessly fought for abolishing DRM as he felt that it was about making the Apple products easier for people to listen to music – the end, as opposed to the means. In that, he was able to communicate clearly and think clearly.

In launching any product by Apple, Jobs personally used to come on the stage and presented each product to the audience in a well prepared speech. In the microfinance sector, we do not hear promoters of any MFI present themselves and launch the product to the prospective clients. Promoters spend more of their energy and time in raising resources, chasing the investors for new funding. But, very little time is spent with the clients who are the bread winners for the MFI’s. Of course, recently, the CEO of BASIX, Vijay Mahajan launched his ‘Sub-K’, new agent banking service. It appears to be an exception to the rule.

By and large, promotion of products is left to the field functionaries who behave in a manner comfortable to them. Some may be as good as Promoters and some may be lacking in understanding the very objectives of the organisation and marketing the products of the MFI which may prove detrimental to the interest of the organisation.

Moreover, the MFI’s promote their products with the eye on making profit from each of the products made available to the clients. As mentioned earlier, the profit should rather be an outcome of intelligent and committed promotional efforts of the company concerned and not the motive of the company.

Position:

Recently Walter Isaacson’s biography of Steve Jobs in which he narrates the mission and philosophy of Jobs of doing business. His mission, he says, was, ‘to build an enduring company where people were motivated to make great products’. He goes on explaining as to why decline appears in a company: “The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesmen, because they are the ones who can move the needle on revenues.” So, the marketing man is put in charge ignoring others who have contributed to the growth of the company. As they do not know the product, they bring down the fall of the company with them. Same is true of a number of MFI’s. Some of the CEOs of MFI’s have demonstrated their ability to be smart Salesmen and were confident of pushing their products to their clients without knowing what the clients wanted.

His passion was to make all of us richer, in the sense of the true positive-sum game. When millions of lives get better because we got good products that were worth many times what we paid for them and that helped us to be more productive in our own ways. He believed in making money not by financial parasitism but delivering better goods and services.

In one of the statements made by Jobs headlined ‘Apple People’, specifically describes a mission to create ‘products that are elegantly simple, feature rich, and delightful to own- for people who learn, create and communicate. He would have done the same thing if he had positioned his financial product also as the CEO of ‘iPeople MFI’.

Way forward:

Steve Jobs wrote his own ‘obituary’ as part of his legendary Commencement Speech (acknowledged as one of the best), delivered at Stanford University in 2005. It’s worth pondering what Jobs did, and didn’t, say:

“No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because death is very likely the single best invention of life. It’s life’s change agent; it clears out the old to make way for the new. Right now, the new is you. But someday, not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it’s quite true. Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma, which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice, heart and intuition. They somehow already know what you truly want to become.”

But, he was in great hurry to provide the best the consumers wanted. So, he is remembered fondly even after his death. We also see promoters of MFI’s writing their obituaries. They should also be remembered by the clients for the good work and not the hard but bad work done. Jobs specialised in achieving the impossible, so it is hard to believe there won’t be an encore of some sort.

So, the availability of affordable microfinance services and on unintimidating terms would be one to create win-win for MFI’s and those who are associated with the sector. There is always time to learn. Let us make Steve Jobs’s soul rest in peace.